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How Is GST Going To Impact Indian Real Estate Sector?

The Goods and Services Tax (GST) is beyond doubt the most revolutionary tax-related reform to be seen in India in several decades, since it will eliminate the conflicting and cascading taxation structures which have confounded several industries over the past few decades. It will most certainly have a profound effect on India’s economic prospects.

A single indirect tax which covers all goods and services will, in the long run, increase tax collection by making it easier for retailers and several other businesses to comply and also moderate overall taxation levels. That said, it should be remembered that the favourable effects of this new taxation regime will become evident only within 2-3 years of its implementation.

Though the goods and services tax (GST) tax structure has been announced, there is still a lot of speculation about which tax rate will be applicable to the real estate and construction industry.

Effectively, the composition scheme allowing for abatement against cost of land to the extent of 75% of the house cost for residential units priced under Rs 1crore and less than 2000 sq. ft makes the effective rate at 3.75%. In other cases, the abatement goes down to 70%, making the effective rate at 4%. This will go a long way in determining whether GST is tax neutral or tax adverse for real estate.